The Blank Swan: The End of Probability

October 19th 1987 was a day of huge change for the
global finance industry. On this day the stock market crashed, the
Nobel Prize winning Black-Scholes formula failed and volatility
smiles were born, and on this day Elie Ayache began his career, on
the trading floor of the French Futures and Options Exchange.

Experts everywhere sought to find a model for this event, and
ways to simulate it in order to avoid a recurrence in the future,
but the one thing that struck Elie that day was the belief that
what actually happened on 19th October 1987 is simply
non reproducible outside 19th October 1987 – you
cannot reduce it to a chain of causes and effects, or even to a
random generator, that can then be reproduced or represented in a
theoretical framework.

The Blank Swan is Elie's highly original treatise on the
financial markets – presenting a totally revolutionary
rethinking of derivative pricing and technology. It is not a
diatribe against Nassim Taleb’s The Black Swan, but
criticises the whole background or framework of predictable and
unpredictable events – white and black swans alike - , i.e.
the very category of prediction.

In this revolutionary book, Elie redefines the components of the
technology needed to price and trade derivatives. Most importantly,
and drawing on a long tradition of philosophy of the event from
Henri Bergson to Gilles Deleuze, to Alain Badiou, and on a recent
brand of philosophy of contingency, embodied by the speculative
materialism of Quentin Meillassoux, Elie redefines the market
itself against the common perceptions of orthodox financial theory,
general equilibrium theory and the sociology of finance.

This book will change the way that we think about derivatives
and approach the market. If anything derivatives should be renamed
contingent claims, where contingency is now absolute and no
longer derivative, and the market is just its medium. The book also
establishes the missing link between quantitative modelling (no
longer dependent on probability theory but on a novel brand of
mathematics which Elie calls the mathematics of price) and
the reality of the market.

Elie Ayache was born in Lebanon in 1966. Trained as an engineer at l’École Polytechnique of Paris, he pursued a career of option market-maker on the floor of MATIF (1987-1990) and LiFFE (1990-1995). He then turned to the philosophy of probability (DEA at la Sorbonne) and to derivative pricing, and co-founded of ITO 33, a financial software company, in 1999. Today, ITO 33 is the leading specialist in the pricing of convertible bonds, in the equity-to-credit problem, and more generally, in the calibration and recalibration of volatility surfaces. Elie has published many articles in the philosophy of contingent claims, as well as a book, dedicated to the philosophy of writing.

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